Monday, March 8, 2010

What to Make of the "White-Hat" Defense

Employees can manage their departure in such a way as to virtually buy themselves a lawsuit. Jay Shepherd, author of Gruntled Employees, sets this out in a very succinct and accurate way. As Jay notes, a departure gone horribly wrong normally has at its epicenter some physical taking or misappropriation of corporate data. The other common fact has to do with customer solicitation. There is often times some room here for employees - for instance, a customer may not fall within the terms of the non-compete agreement, or it may have terminated its relationship with the employer - but there is usually no justification for taking information and jumping ship to a competitor.

I always advise employees considering a transition to strive to wear the "white hat." By claiming the moral high-ground, an employee can shift the entire metric of a non-compete dispute. When employees seek to wriggle out of a non-compete on a technicality, they are in strict confession-and-avoidance mode. Never a good thing. It is much better to stake out territory on the moral high ground and make an employer prove its case without the typical smoking-gun evidence.

An employee can win a non-compete case, particularly if she has not taken information or sought to capitalize on the ex-employer's client goodwill. The case reporters are full of such suits. Courts will be quite hesitant to prohibit employment altogether if the ex-employer hasn't lost any customers or suffered a misappropriation of data.

What factors do I typically see in "white-hat" cases? Well, every case is different but here are the best steps that you, as a transitioning employee, can take to minimize risk:

(1) Leave Your Employer's Documents Where They Belong. Yes, this includes any electronic information, and good luck convincing a court that the sales report you took is no longer confidential. Judges are suspicious of employees who take documents with them, particular through surreptitious means and especially on the cusp of resignation. Any sort of taking of corporate information - trade secret or not - virtually guarantees the employer will establish a protectable interest in its non-compete clause. If you happen to have your employer's documents on your home computer or stored in your personal e-mail account, alert your manager on the way out the door so they can deal with it before you're employed with a competitor.

(2) Be Upfront and Candid. If you hide, or worse, misrepresent, your post-employment plans, this leads to an inference that you intend to compete unfairly. It also makes you look untruthful and leads to uncomfortable moments on the witness stand.

(3) Give Plenty of Notice. Notice policies may be in a contract, an employee handbook, or established through informal custom and practice. Whatever form it takes, follow it. An employer may accelerate your departure, but don't just disappear.

(4) Document Your New Relationship. If you jump ship to a competitor, make sure your new agreement outlines what it is you won't be doing for them. For instance, that new contract should prohibit use of your former employer's information and it should outline your duties such that you will be prohibited from soliciting away old accounts and former co-workers. This document will be one of the key exhibits in the case, and a judge will want to see something beyond mere verbal assurances between you and your new employer.

(5) Avoid E-Mail Discussions About Your Job. E-mail suffers from a terrible lack of context. What one person may say in an e-mail discussion is virtually impossible to explain to someone looking at it for the first time. E-mail evidence is often damaging in non-compete cases, particularly if an employee is trying to sell himself or herself to a new company. You have to be extremely careful not to disclose anything proprietary in discussions with potential managers and not to disparage the employer in any way.

(6) Ask for a Waiver. There is nothing wrong with asking for something you might not get. If you are bound by a non-compete clause, but won't be called upon to solicit your old accounts, ask your employer to modify the restriction. In exchange for a waiver of the general non-compete, you can reaffirm the non-solicitation restriction. If the employer balks, offer to keep it confidential so it can't be used as precedent within the company or offer to tack on a few extra months on the non-solicitation covenant. In the event of litigation, this will show the court how you've tried to exhaust all alternatives and work out a compromise.

(7) Don't Be a Prick. Ex-employers sue people who they feel have wronged them. And judges are people too - they don't like jerks.

1 comment:

  1. Great post, Ken, and great advice for clients. I've told clients the same thing for years: make sure you're wearing the white hat, or the judge will find a way to rule against you.

    Thanks for the shout out.